CEO Ownership and Stock Market Performance, and Managerial Discretion

102 Pages Posted: 16 Feb 2009 Last revised: 8 May 2013

Ulf von Lilienfeld-Toal

Luxembourg School of Finance

Stefan Ruenzi

University of Mannheim - Department of International Finance

Date Written: May 1, 2013

Abstract

We examine the relationship between CEO ownership and stock market performance. A strategy based on public information about managerial ownership delivers annual abnormal returns of 4 to 10%. The effect is strongest among firms with weak external governance, weak product market competition, and large managerial discretion. This suggests that CEO ownership can reverse the negative impact of weak governance. Furthermore, owner CEOs are value increasing: they reduce empire building and run their firms more efficiently. Overall, our findings indicate that the market does not correctly price the incentive effects of managerial ownership, suggesting interesting feedback effects between corporate finance and asset pricing.

Keywords: Managerial Ownership, Asset Pricing with Large Shareholders, Managerial Discretion

JEL Classification: G12, G30

Suggested Citation

Lilienfeld-Toal, Ulf von and Ruenzi, Stefan, CEO Ownership and Stock Market Performance, and Managerial Discretion (May 1, 2013). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1343179 or http://dx.doi.org/10.2139/ssrn.1343179

Ulf Von Lilienfeld-Toal (Contact Author)

Luxembourg School of Finance ( email )

162a, avenue de la Faïencerie
Luxembourg-Limpertsberg, L-1511
Luxembourg

Stefan Ruenzi

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

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